General Information

Newsletter

IRA's

We have discussed the benefits and the variations of the 401k plans to
help secure a healthy retirement. There are other options that are out
there that have their own benefits and may appeal to you when it comes
to how you are planning on spending your golden years. IRA’s or
Individual Retirement Accounts acquire interest on your contributions
and are accessible when you reach a specified age for retirement. They
are great on their own or can be used in combination with an employer
supported 401k.

There are two types of IRA’s, a Traditional and Roth. Both come
with advantages and disadvantages. Both IRA’s limit the amount you
can contribute each year. Those under the age of 50 can only contribute
$4,000 a year, and people 50 and older can contribute $5,000 a year. Those
limits will rise in the year 2008. You cannot contribute more than you
make for the year however. For example, if a college student who made
$3,000 last year but had money left over from a student loan or received
money from a relative can still only contribute $3,000 for that year.

Traditional IRA:

A big benefit with a Traditional IRA is the tax benefits. A Traditional
IRA is an account that you can put money into tax-free, meaning when you
deposit money into the IRA you can deduct that amount from your personal
income before you pay federal income taxes. However, when you start to
withdraw from it when you retire it will be taxed based on the tax bracket
you fall into.

Any money that you withdraw from your IRA is subject to a 10% fee until
you reach the age of 591/2. Then you can withdraw without a fee but again
it will become taxable income. When you are 701/2 you must start to withdraw
the money. Once you begin to take money out there is a annual minimum
amount required that you have to take out. This starts anytime after the
591/2 age deadline.

Roth IRA:

The main difference between a Roth IRA and a Traditional IRA is when the
money is taxed. Contributions to a Roth IRA are not tax deductible like
those of the traditional IRA. But unlike the Traditional IRA, any withdraws
you make will not be taxed. Basically, Roth IRA’s tax money that
you put in while, Traditional IRA’s tax money that you take out.

There are other benefits for a Roth IRA. Even though the purpose is to
save for retirement, you can withdraw your contributions at anytime tax-free
and without penalty. Anything you borrow that is over the contribution
limit is subject to both taxes and penalties.

A Roth IRA can help you achieve the American Dream. You can cash out up
to $10,000 from your Roth IRA including earnings, tax and penalty free
to go towards buying your first home. The account must be open for at
least 5 years though. Couples can withdraw up to $20,000 if each of them
has their own account.

Just like the Traditional IRA you can begin to withdraw earnings penalty
free once you reach the age of 591/2. There are no forced distributions
once you turn 701/2 and no annual minimal distribution mandates.

The money you contribute to a Traditional IRA is true money, meaning that
every dollar that you contribute equals that value and will gain that
much more interest. A Roth IRA is taxed and therefore not equal value.
When you contribute $4,000 into a Traditional IRA, all $4,000 is gaining
interest. When you contribute $4,000 into a Roth IRA it is taxed first
and only the remaining $3,600 is gaining interest.

To sign up for an IRA account you will want to contact a broker, mutual
fund company, or even your bank. This depends on what you want to invest
your money in. Shop around and talk to many different people until you
are comfortable with one.

You will want to choose the IRA that you are more comfortable with and
the one that you think gives you the best results. If you think that you
might be in a higher tax bracket when you retire then a Roth IRA may be
a better choice, but if you might be in a lower tax bracket upon retirement
than the Traditional IRA will benefit you most.

An IRA is just another way for you to prepare for your well-being into
your retirement. Investing can be a big scary obstacle for many people,
but there are safe ways for it to be successful. Before you know it you
will be enjoying your golden years criss-crossing the U.S. in your loaded
motor home.

We will continue to search and write about other minor investment options
that will have your money working for you.

Our accredited credit counselors will
help you take control of your financial life and get out of debt faster
than you can on your own. We offer a debt management program that will
stop the collections calls, lower your monthly payment and provide you
peace of mind. Our pre and post bankruptcy counselors provide an easy
process for you so you can focus on rebuilding your financial being.

It is our policy at Pioneer Credit
Counseling not only to help people get out of debt, but also educate in
sound budgeting practices.